International Monetary Fund chief under investigation in France

Thursday

Aug 28, 2014 at 6:00 AMAug 28, 2014 at 8:34 AM

By David Jolly The New York Times

PARIS — Christine Lagarde, the head of the International Monetary Fund, said Wednesday that French prosecutors had placed her under formal investigation, in a long-running inquiry into a murky business affair that dates to her time as finance minister under former President Nicolas Sarkozy.

Lagarde said in a statement through her lawyer that she was being investigated for "simple negligence," by the Court of Justice of the Republic, the judicial body that is charged with investigating the conduct of high government officials. The court in 2011 had ordered an investigation of whether Lagarde abused her authority in a dispute involving a multimillion-dollar payout in 2008 to a French tycoon.

Lagarde, who has denied wrongdoing, said in a statement that the decision by a judicial committee to place her under formal investigation was "totally unfounded" and that she had instructed her lawyer to appeal.

She made the announcement a day after she was questioned for a fourth time in the investigation of her role in 2008 during an arbitration proceeding between the government and Bernard Tapie, a onetime Cabinet minister and the former owner of the Adidas sportswear empire. Prosecutors had assigned Lagarde the status of "assisted witness" in the case. Placing her under formal investigation signals that prosecutors believe they have evidence of wrongdoing, but the charge of negligence hardly suggests high crimes.

Negligence by a government official that makes possible the misappropriation or embezzlement of public funds is punishable with a maximum fine of 15,000 euros ($19,800) and up to one year in prison.

"After three years of investigation and dozens of hours of interrogation, the committee concluded that I had not been guilty of any infraction," Lagarde said in the statement, "so it was reduced to claiming that I had been insufficiently vigilant during the arbitration."

In the French legal system, a formal investigation suggests prosecutors believe they have enough of a case that they may ultimately bring criminal charges and have a trial. The reality is that many such investigations drag on for years with no charges being filed before being dropped.

Since 1944, when the IMF was created, the fund's top official has been a European, with the job alternating among Western European nations. Lagarde took over as managing director of the fund in 2011 after her French predecessor, Dominique Strauss-Kahn, left in disgrace amid charges — later dismissed — that he had sexually assaulted a woman in a New York hotel room.

Lagarde had served as Sarkozy's finance minister from 2007 until leaving for the IMF.

Tapie, who had been in a long dispute with a state-owned bank, Credit Lyonnais, walked away from the arbitration in 2008 with an award of more than 400 million euros. Tapie had accused the bank in 1993 of bilking him when it oversaw the sale of his stake in Adidas.

In 2007, the year before the award, Tapie, who had been a career Socialist, suddenly backed Sarkozy's center-right Union for a Popular Movement party. The amount of the award came as a shock to many, and the investigation that now involves Lagarde began after critics accused Sarkozy's government of having carried out a sham arbitration.

Stéphane Richard, Lagarde's former chief of staff and currently the chief executive of Orange, the French telecommunications giant, has already been placed under formal investigation on "suspicion of organized fraud."

Since the start of the investigation, prosecutors have discovered that Tapie and his lawyer had had an undisclosed relationship with the chairman of the arbitration panel, Pierre Estoup, at the time the procedure was held. All three are now under formal investigation for possible fraud.

Prosecutors have been trying to understand at what point Lagarde learned about potential irregularity in the procedure and why she did not act to stop it.

Tapie has always maintained that he was entitled to the money, and has described the investigation as a politically motivated attack by the Socialists on Sarkozy.

Prosecutors in Paris could not immediately be reached for comment.

In a statement, the IMF communications director, Gerry Rice, said Lagarde was "now on her way back to Washington and will, of course, brief the board as soon as possible. Until then, we have no further comment."

Lagarde's lawyer did not immediately return a request for comment, but Lagarde told Agence France-Presse that she had no intention of stepping down from her post at the monetary fund.